Weighing the risks to the economic outlook: remarks at The Leo J. Meehan School of Business, Stonehill College, Easton, Massachusetts, September 3, 2019
It was an eventful August in the financial markets amid talk of additional tariffs and tax cuts, the falling 10-year Treasury rate, and volatility in stock prices. But the economic data and forecasts indicate a relatively good domestic economy.
The Federal Reserve's Tools for Policy Normalization in a Preferred Habitat Model of Financial Markets
This paper develops a model of the financial system that provides a framework for analyzing monetary policy implementation in a world with multiple Federal Reserve liabilities and a superabundant supply of reserves. The analysis demonstrates that the Federal Reserve's suite of policy tools including interest on excess reserves (IOER), overnight and term reverse repurchase agreements, and term deposits should allow the Federal Reserve to raise the level of short-term interest rates at the appropriate time. The model also demonstrates that these tools could be used in different ways to achieve ...
Decentralized Finance: On Blockchain- and Smart Contract-Based Financial Markets
The term decentralized finance (DeFi) refers to an alternative financial infrastructure built on top of the Ethereum blockchain. DeFi uses smart contracts to create protocols that replicate existing financial services in a more open, interoperable, and transparent way. This article highlights opportunities and potential risks of the DeFi ecosystem. I propose a multi-layered framework to analyze the implicit architecture and the various DeFi building blocks, including token standards, decentralized exchanges, decentralized debt markets, blockchain derivatives, and on-chain asset management ...
Cash-in-the-Market Pricing in a Model with Money and Over-the-Counter Financial Markets
Entrepreneurs need cash to finance their real investments. Since cash is costly to hold, entrepreneurs will underinvest. If entrepreneurs can access financial markets prior to learning about an investment opportunity, they can sell some of their less liquid assets for cash and, as a result, invest at a higher level. When financial markets are over-the-counter, the price that the entrepreneur receives for the assets that he sells depends on the amount of liquidity (cash) that is in the OTC market: Greater levels of liquidity lead to higher asset prices. Since asset prices are linked to ...
The Economy in the Time of Coronavirus
Remarks at the Buffalo Niagara Partnership, the Greater Rochester Chamber of Commerce, and CenterState CEO (delivered via videoconference).
Managing Risk in Global Financial Markets: CCP Governance, Supervisory Stress Testing, and Default Management Auctions
The second annual Symposium on OTC Derivatives was held in Shanghai on June 26, 2018. This event was cosponsored by the People?s Bank of China and the Federal Reserve Bank of Chicago and hosted by CCP12 (The Global Association of Central Counterparties). Its three panels focused on central counterparty (CCP) governance, supervisory stress testing, and default management auctions.
The Concentration of Cleared Derivatives: Can Access to Direct CCP Clearing for End-Users Address the Challenge?
Cleared derivatives contracts are now concentrated among a small and dwindling number of institutions. Many policymakers and regulators have argued that this concentration has adverse consequences, some of which may have systemic risk implications. The authors explore the benefits and challenges of encouraging major end-users of derivatives to become direct clearing members of central counterparties (CCPs). If done prudently, increasing and diversifying the pool of clearing members and redistributing outstanding derivatives contracts across them may help CCPs become more resilient.
The Economic Outlook
Remarks at Foreign Policy Association, New York City.
Introducing the Chicago Fed’s New Adjusted National Financial Conditions Index
This article introduces improvements to the adjusted National Financial Conditions Index (ANFCI). Compared with the previous version, the new ANFCI uses an enhanced estimation procedure with a broader set of macroeconomic adjustment variables and produces a longer time series history.
Measuring Global Financial Market Stresses
We propose measures of ﬁnancial market stress for forty-six countries and regions across the world. Our measures indicate that worldwide ﬁnancial market stresses rose signiﬁcantly in March following the widespread economic shutdowns in the wake of the COVID-19 pandemic. However, hardly anywhere in the world did these March peaks in ﬁnancial stresses reach those seen during the trough of the 2007-09 Global Financial Crisis. Since March, ﬁnancial market conditions normalized rapidly with ﬁnancial market stresses around average levels. We also show that our ﬁnancial stress measures ...